Accounting for the Alignment of Interest and Commitment in Interfirm Transactional Relationships

29 Pages Posted: 20 Dec 2004

See all articles by Ed G. J. Vosselman

Ed G. J. Vosselman

Radboud University Nijmegen

Jeltje van der Meer-Kooistra

University of Groningen - Faculty of Economics and Business

Date Written: 17 2004, 11

Abstract

Control in interfirm transactional relationships has, inter alia, the purpose of mitigating potential opportunistic behaviour. For an individual actor the power-base to exercise control over the (output of) the behaviour of another actor in the relationship is a contractual arrangement. From a contractual perspective control systems are designed, thus providing contractual instruments to align interests and to prevent future opportunistic behaviour from occurring. Transaction cost economics proves to be a powerful tool for designing these instruments, which from this theoretical perspective are based on &apos'credible commitments&apos' and &apos'credible exit threats&apos'. The paper argues that the design and potential use of these instruments are efficient in the presence of the legitimate mistrust for which they have to compensate. However, given fundamental uncertainty, these designs do not suffice in attenuating opportunism and have to be complemented by trust building. Drawing on insights from cognitive social psychology and sociology, the paper clarifies that in self-regulating processes of rational interaction guided by a principle of enlightened self-interest, trust is built via mutual relational signalling. Partners voluntarily and deliberately signal to each other that they are trustworthy. The paper argues and gives evidence that instrumental control system design embedded in an institutional environment and atmosphere is a necessary flank for a trust building process to work properly. The (interrelated) roles of accounting in a contractual realm as well as in self-regulating processes of relational signalling are examined.

Keywords: accounting, control, trust, instrumental design, relational signalling

JEL Classification: M, M41

Suggested Citation

Vosselman, Ed G. J. and van der Meer-Kooistra, Jeltje, Accounting for the Alignment of Interest and Commitment in Interfirm Transactional Relationships (17 2004, 11). ERIM Report Series Reference No. ERS-2004-095-F&A. Available at SSRN: https://ssrn.com/abstract=636806

Ed G. J. Vosselman (Contact Author)

Radboud University Nijmegen ( email )

Thomas van Aquinostraat 3
P.O. Box 9108
Nijmegen, 6500HK
Netherlands

Jeltje Van der Meer-Kooistra

University of Groningen - Faculty of Economics and Business ( email )

9700 AV Groningen
Netherlands
+31 50 363 3829 (Phone)
+31 50 363 7356 (Fax)

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